BLOG: Upfront fees ‘skin in the game’ would stop fall-throughs

Property fall-throughs have been too high for too long and I find myself asking if the ‘No Sale, No Fee’ model is still relevant. Could it be time to shake up the sales transaction model, encouraging commitment to a sale from both the buyer and vendor with upfront fees?

Data suggest that around 35% [or more] of property sales transactions fall through – either due to buyers pulling out or vendors withdrawing from the sale.

This is a nightmare for agents who have spent numerous hours marketing the property and now won’t be paid for their time.

But as an industry, should we accept such a high failure rate or find ways to change buyer and seller behaviour? Or do we need a model that keeps both the vendor and buyer engaged and focused and if so, what is it?

There is growing evidence that those transactions with an upfront fee are significantly less likely to fall through. It stands to reason if someone has skin in the game, they will be more likely to see something through.

CHANGE

Today’s vendors appreciate that putting their property on the market doesn’t guarantee a sale. However, if the offer on their home falls through, the seller loses both time and money, and they need to be prepared to go through the process all over again.

Meanwhile, the agent who has already spent hours liaising with the vendor and marketing the property has accrued meaningful costs as well as losing on the all-important sales fee. This can be damaging to their client relationship and potentially threatens the opportunity to market the property a second time.

But by encouraging financial commitment from the vendor at the outset could we reduce the chances of the vendor withdrawing from a sale?

For example, we have seen agents offering vendors varied options from no sale, no fee to paying the full fee upfront, and noticed a staggering difference when it comes to fall throughs.

This is borne out by the experience of Yorkshire Estate Agents, Preston Baker, who have a three tier offer; full fee upfront, a percentage fee upfront and no sale, no fee.

We have seen 82% of the sales go through on full payment upfront.”

SJ Taylor, Director at Preston Baker, says: “Based on the last 12 months instructions, we have seen 82% of the sales go through on full payment upfront, versus just 32.5% completions on the no sale, no fee model.

“It certainly helps drive vendors – in fact, we would usually see a higher percentage of completions on the full payment model, however the Liz Truss effect impacted sales last autumn.”

They firmly believe that that upfront commitment helps to ensure the vendor is driven to progress the sale.

Likewise, when it comes to buyers, would a financial obligation at offer stage ensure they have more of a vested interest in the overall success of the sale?

For example, if buyers had to pay for the property searches from the outset would they be more likely to commit to the purchase?

Upfront fees

Moreover, searches would be back sooner, arming them with the information needed to make decisions and ask the right questions, not to mention saving time on the transaction process.

Upfront financial fees for both buyer and seller could also help to deter speculative buyers and sellers, so agents can prioritise the transactions that are more likely to go through.

At ASAP, we removed the no sale, no fee model on searches nine months ago. It took a great deal of consideration at the time and wasn’t a decision that we made in haste.

We haven’t looked back. Our average fall through rate is now 13% compared to the industry average of 35%, and because we can order searches straight away, the whole transaction process now starts earlier too.

STRATEGY

Have we reached the point where it is vital to establish customer (buyer and vendor) ‘stickiness’?

After all, no-one wants to carry out work that they will never be paid for. It doesn’t make good business sense and devalues the work that has been done.

I can’t think of other industries that do this.

Should agents be exploring new strategies, not only to ensure fewer fall-throughs, but also to ensure they are rewarded for all of the work that they do?

Richard Megson (main picture) is Managing Director of ASAP.